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Can SodaStream Save Best Buy?

Best Buy is testing SodaStream exchanges as a way to drum up repeat business.

There were plenty of interesting morsels poured out during SodaStream's (NASDAQ:SODA) presentation at the 15th Annual ICR XChange Conference yesterday.

One thing that I didn't dabble into in my coverage of the 25-minute presentation was that the company behind the wildly popular soda-making system is starting to expand the number of retail partners that go beyond merely selling its starter kits and new consumables.

Yonah Lloyd -- SodaStream's chief corporate development and communications officer -- explained that three more retailers are starting to test out the ability to swap out carbonators. Target(NYSE:TGT), Kohl's(NYSE:KSS), and Best Buy(NYSE:BBY) are testing offering refilled CO2 canisters at half-price for anyone bringing in an empty one.

There are already more than a few department store chains, housewares retailers, and office supply superstores doing exactly that.

Kohl's is a bit of a surprise. It's more apparel-based than Target, though it does sell plenty of small kitchen appliances. However, Kohl's offers very little in-store variety of SodaStream flavors. It's not Bed Bath & Beyond(NASDAQ:BBBY), which has tripled its in-store availability of SodaStream flavors to 35 in less than three years. However, if the carbonator exchanges pan out at Kohl's, it's easy to see the price-conscious department store operator increasing SodaStream's product lines and visibility.

Best Buy is the third retailer. That one isn't as big of a surprise as you might think. Best Buy began stocking SodaStream two summers ago. The consumer electronics retailer targets relatively young shoppers buying gadgets, video games, and TVs. Why wouldn't they want to make their own soda?

However, SodaStream may be a bigger part of Best Buy's future.

The media is the syrupy message Walk into a Best Buy and you'll immediately find yourself surrounded by Blu-rays, CDs, and video games. The chain thrusts these categories to the front of the store, because it knows that it's what stimulates repeat purchases. Someone may only buy a new TV or dishwasher once every few years, but there's always a steady flow of new media releases on Tuesdays.

This is a problem for Best Buy. Physical media is going digital. It's not a surprise that sales are falling for Blu-rays, CDs, and video games. Shoppers are consuming them digitally, cutting out the brick-and-mortar distributor along the way.

You can't do that with SodaStream. You can't download syrup. There's no 3-D printer on the market that will crank out a canister filled with carbon dioxide. The more consumers that use SodaStream, the more flavors and carbonators they go through. Offering carbonator replacements -- just to keep up with the Bed Bath & Beyonds of the world -- makes sense.

Take that, Jeff Bezos There's also a bigger reason to hop on the bandwagon and offer carbonator exchanges. This is the one thing that can't be "showroomed" away. Yes, SodaStream itself offers exchanges, but the shipping costs make it more expensive.

There are online deals to be had on starter kits and syrups, but there's a reason that there isn't a major online model for propane tank replacement or swapping out five-gallon tubs of bottled water. Some things just make more sense to do in person, and this is where matching other retailers with carbonator refills can help Best Buy at a time when it matters the most.

SodaStream will never be a major part of Best Buy's revenue mix. However, the company needs a growing category to fill the void, and this certainly qualifies. SodaStream consumables have seen their sales rise 55% over the past year, and the rate is even higher in the U.S., where the company sold 2 million flavor bottles during the third quarter alone.

More important, SodaStream will help Best Buy attract shoppers who wind up buying other things. Bed Bath & Beyond has aggressively promoted SodaStream consumables because it knows that it can woo customers with additional housewares on the way to the checkout line.

This is the time to act. SodaStream is now testing distribution through upscale grocer Wegmans, and by the time it breaks into more traditional supermarket chains, the opportunity here may be lost. Once SodaStream is available through merchants that are visited weekly, the allure of a Bed Bath & Beyond, Kohl's, Target, or Best Buy for SodaStream refills will dry up.

The clock is ticking on Best Buy, and SodaStream can help make sure that there's not a ka-boom at the other end when the ticking stops.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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